A popular concept today is that Public Services are terribly under-funded and it is all because of the cuts by those horrible Tories. Employees of the NHS scream the loudest about how there is a crisis due to under-funding and more needs to be spent, and of course the rich should pay.
Actually that is the worst form of selfishness demanding something should be done and someone else should pay. That is the normal stance of socialist policy and is the position of Jeremy Corbyn and the latest reincarnation of Old Labour politics. It is the politics of envy.
I have in the past done a simple experiment of writing on a piece of paper the tax that a low earner pay and then put various increased earnings and asked a number of people what they thought the higher earners should pay in tax, without thinking about tax rates. Invariably what they put down was way below what should be expected of the tax rates of those earners.
Do ordinary folk understand percentages
Part of the problem is that everyone for decades has referred to wages and tax and shop sales and bargains in percentages, and a huge number of ordinary people have no concept what the numbers mean.
It would be better to go back to a scheme of proportion, like the Church used to do in the form of an annual Tythe, of 1/10th of the product of a farm, an estate, or a business. The vast majority of employed and self-employed people in small towns away from London and other large cities the earnings are between £18,000 and £40,000.
For these people they get a tax-free allowance of £11,000 then pay 1/10th of the next £5,000 of earnings, plus 1/5th of the remainder of earning. So if the ‘average’ wage is £26,000 they will get £11,000 tax-free then pay £2,500 tax. If instead they are on maximum Benefits they don’t pay tax, so are better off, but that’s another story.
Tax rates 2015-2016
For the last tax year the rates were, £11,000 tax-free, the next £5,000 at 10%, the next £27,000 at 20%, the next £118,000 at 40%, and beyond that at 45%.
To give some examples of what this means in terms of tax is that if you are on average wage of £26,000 you should pay £2,500 tax. If you are at the top of this tax band earning £43,000 you should pay £5,900 tax. At the top of the next band earning £161,000 you should pay (and probably will pay) £53,000 tax.
Beyond that, if you are earning say £1m you should be paying £430,650 tax, but that seems so unreasonable that you would employ an accountant who would likely use any number of avoidance techniques to get the tax down really low.
Now consider the likes of Andy Murray who earned a cool £4,000,000 just for winning the World title from Novak Djokovic at Wimbledon. I am sure his earnings for 2016 must have exceeded £10m. What about the footballers with their obscene incomes. Then there is Adele who in 2014 earned £27.4m. Did she pay £12,310,650 in tax? No way!
Even presenters at the BBC had contracts that made them self-employed so the likes of Jonathan Ross wouldn’t have to pay the required tax on his £4,000,000 earnings via PAYE.
What is the problem?
The truth, and we all know it, is that the really high earners employ legal avoidance schemes within the 16,500 A4 pages of British tax rules to avoid paying even basic rate tax on the bulk of their earnings. So there is the cause and that leads us to the solution.
Any method of trying to tinker with tax rates within the existing system has almost no effect on the high earners because of the loopholes. It is also built into the British psych from a very young age with stories such as Robin Hood. That when the rulers demand amounts of tax that are unreasonable you actively fight back and give them less than they would get if they weren’t so unreasonable.
What actually happens is that people give small amounts of tax quite willingly but as it goes up so does the dislike of the tax regime. There reaches a point where the higher the tax rate the less gets collected. Such a situation is displayed in the Laffer curve, which socialists always try to denigrate because it is evidence that undermines the claim that you get more tax by putting the rate up.
It has been proved time and again and in particular when Harold Wilson was in power where increased tax rate drove high earners to either move business headquarters (for tax purposes) outside Britain or they up sticks and emigrated. Tax revenues plummeted and with half the country on strike the energy stations couldn’t get enough coal and the country was reduced to 3-day working weeks.
So what is a solution?
A solution, which I happen to like, is a flat tax. What this means is everyone, and I mean everyone pays exactly the same proportion of income after allowance, in tax. No loopholes, no 16,500 pages of A4 rules and exemptions, no need for all those expensive accountants, and everyone can understand it and no what they are likely to pay.
Consider that the tax free allowance is increased to £12,000 and the flat rate is 20%, or 1/5th after allowance. If you are paid the ‘average’ wage of £26,000 you would have to pay 20% tax on £14,000, which is £2,800. An earner on £43,000 would have to pay 20% tax on £31,000, which is £6,200.
An earner on £161,000 would have to pay tax on £149,000, which is £29,800. A person earning £1m would be required to pay £197,000 and would likely pay it. Even Adele might be prepared to pay £5,477,600 on £27.4m of earnings.
Other changes
In addition to changing the tax regime to a flat tax I would also like to recommend that the tax cycle be brought into line with the calendar. This could mean also a choice end of tax year to be either 31st December or 30th June. That whichever you choose you have 6 months to submit your return for the end of the previous annual accounting period.
Also, that NI contributions are raised slightly and made to specifically fund the NHS, so that no longer can NHS funding be used as a political weapon by one party against another. By making it into National Health Insurance and separated from other revenue and public spending, if the people demand more spending they all will have to agree to an increase rate for NHI contributions. No longer demanding more that someone else has to pay.
Tony, just a quick word in support of your view on climate change and to suggest that Quercus should investigate some truly primary sources of information before he pontificates on this subject.
How many years of ‘nothing out of the ordinary happening’ will it take before the climate alarmists finally admit their folly?
How many years will it take for the young to recover from the incessant propaganda, brainwashing and indoctrination that they have been subjected to?
Will the general public ever trust ‘scientific concensus’ again?
Will The Royal Society ever command respect again?
Why have over 95% of the climate models simulated greater warming than has been been observed?
None simulated the complete absence of warming over approximately the last eighteen years.
Why have such obscene amounts of money been wasted on what have proved to be incorrect predictions?
So many questions…
Howard, please see my reply to Tony.
Tony
So your idea of a fair tax is that someone on £161,000, on flat tax and using your figures, would pay £23,200 less then they do now, while someone on the avrage of £26,000 would pay £300 more. And you seriously think that’s going to go down well in Stoke? I extend the same challenge I have made to others on this – come and join me canvassing there and we’ll find out and settle this.
Yes it is about proportion – but not your sort. It should be that of what one person has left to live on compared to another, ie recognising the principle of the ability to pay. Otherwise the wealth gap simply increases, which is what is happening now, proving the current tax regime is not progressive enough.
Where is the evidence flat tax would lead to growth? Where is the evidence of the so-called brain drain of the 1960s? What are the actual figures from Mrs Thatcher’s time? I refer rreaders back to my On Tax article which deals with the facts.
As for Harold Wilson – he actually did quite well on employment and inflation. He inherited a terrible balance of payments problem from the Tories, and failed to halt industrial decline (nothing new there) and didn’t do much to stop the unions, with disastrous consequences – but househood wealth grew and in terms of general welfare we did rather well. Anyway, if the likes of R Branson won’t support their country by living here, we’ll get by without them.
The only thing we can agree on is our absurd tax code. But if we could have “no loopholes”, why would that depend on having flat tax? We beat the Laffer Curve by showing some gumption, simple.
A slight increase in National Insurancxe for the NHS and hypothecation? Your’e joking! The overwhelming bulk of NI goes to the state pension Tony! Whatever the arguments for that, political realism dictates this is not the time to be advancing them – we’ve enough radical things to be doing without that one.
Sorry but I find your article, like your head-in-the-sand conspiracy theory on global warming, very unconvincing. And it’s not going to help us win a general election.
Someone in the public service earning £161000 can have their gross salary reduced so after tax the take home is the same. Anyone earning that sort of money in private enterprise likely has a good accountant and doesn’t pay the proper amount of tax anyway.
You cannot necessarily say that the NI contributions go on pensions, they could just as easily go to the NHS. Originally they were introduced to cover both.
I do know the scientific community has become corrupted by the global warming scam. There is loads of evidence for this. It is the truism that a lie repeated often enough is believed and the bigger the lie the more is is accepted. I don’t disbelieve it from a conspiracy point of view but from the point of view of the science not standing up to scrutiny.
The oft repeat lie that 95% or 97% of scientists believe in global warming is total rubbish. This dodgy statistic originated following a survey sent out to thousands of scientist but a mere 77 responded, and of those 95% believed it.
CO2 doesn’t stop heat escaping from the atmosphere and it doesn’t trigger more water vapour that further stops it as claimed. It is water in the atmosphere that traps heat if it is at low level or radiates to space if it is high level.
The water cycle is a heat extractor from the atmosphere and is included in general circulation models (GCMs) as positive feedback when it should be negative feedback.
Just think about the really cold days recently with clear skies, then a few days later a lot warmer because of low level clouds.
I know the science of latent heat extraction from tropical oceans to the high atmosphere and have written a paper on it. In conjunction with another scientist we have developed the equations for energy transfer from the tropical oceans to the top of troposphere. Don’t try to denigrate what I know about the energy cycle in the atmosphere when you are way out of your league on this issue.
Gordon Bennet! So the solution is to underpay public servants! And people on that in the private sector are going to carry on avoiding after we’ve simplified the tax code – the heck they are!
I certainly do say that NI nearly all goes on the state pension – fact. It did include medical insurance when brought in by Lloyd George, but the state didn’t own many hospitals then. If you included the NHS it would be another huge figure – with compensating reduction in tax figures of course (which ones?) – but we just don’t need another upheaval on this right now.
And you don’t think you’re the one out of your league on climate change? Please tell us all the results of your paper’s peer review. I’m rather more inclined to believe the overwhelming view of the scientific establishment, which includes many people rather higher qualified on the subject than you, I’m sure.
The irony is that it shouldn’t change our energy policy anyway, which is pretty good – it’s actually a non-problem for us in that sense, but you have to go and get us ridiculed for it.
Tony I’m, sorry – flat tax and climate change denial are wrong and dangerous, and can only lose us votes.
The environmentalists have been looking for decades for anything to pin on the plague of humans that they are destroying the environment. Eventually with a aid of a computer algorithm Dr Michael Mann created what became known as the Hockey Stick.
Using ‘selected’ tree ring data from bristle cone pines of California and other data he produced this graph showing no change in California temperature until after the beginning of the industrial revolution and the start of emissions of CO2.
Interestingly he consistently refused to reveal the data nor the algorithm used to generate the graph to statistician Steve McIntyre and Professor Ross McKitrick who wanted to verify the result.
Eventually sufficient information was obtained to recreate the algorithm and test data. What was found was the algorithm searched data for any which showed an uptick towards the end of the series. This was then magnified enormously whilst all other trends were equally suppressed and a hockey stick shape resulted.
Running the algorithm with over one hundred randomly varying data sets plus just one with an up tick at the end resulted in a hockey stick graph. The thing was scientific and statistical fraud.
Since then the Climategate emails have revealed continual massaging of results from temperature sensors in the oceans and on land by the World Meteorological Organisation and the British Meteorological Office and the Hadley Centre at the University of East Anglia. Even data from radio sondes and satellites is being manipulated by the Goddard Space Flight Centre to produce the results required of the dogma.
As far as getting rid of the use of fossil fuels and replacing them with wind and solar generation, a few days ago when it was quite windy in Scotland but the lower part of England was freezing, a check of the electricity generation revealed 49.8GW of electricity consumption with a massive 2.3% being generated by wind.
Clearly the reduction of fossil fuel fired power stations and the massive expenditure on more than 7000 wind turbines on land and around our coasts has been a great benefit to someone.
By the way, according to the various meters for coal, CCGT, and nuclear they were all in the orange or bordering on red lining. We were about 1.2GW of the limit of generation, and that included all the electricity being cabled from Ireland France and Norway.
Oh, and about peer revue. You cannot get it from Universities because they are all in on the scam, because governments will fund research to support the dogma only.
The leading science journals like Nature have been taken over by environmentalist Editors who won’t publish anything that challenges the dogma. Even the American Academy of Science and the royal Society have environmentalists leading them so the position of these prestigious organisations is to support the dogma.
If you believe the EU was a stitch up to replace democracy with bureaucracy and technocracy and globalisation with big corporations in on the act, then anything is possible.
The bigger the lie, the easier it is to convince people it is truth. Finally science is professional scepticism, everything is up for challenge, nothing is ever settled unless it has stood the test of time and constantly is proved correct when challenged.
Politics is all about consensus, so when a politician claims the science is settled and the consensus of scientist accept or support it, you know this is false.
Quercus, I do not wish to repeat our discussion on TAXes from other articles but I have to put one correction into your arguments:
according to a budget, we are spending £145 bn on Health while NI contribution is estimated on £126 bn (2016). Somehow I cannot see how “overwhelming bulk of NI goes to the state pension”. We still need to “borrow” from other tax contributions or increase a deficit to cover this position.
The National Insurance Fund
Main article: National Insurance Fund
The Government Actuary estimates the 2012-13 results for the National Insurance Fund to be as follows:[3]
£ billions (2012/13)
Payments Income
Basic State Pension (including Christmas bonus) 79.321
Widows’/Bereavement benefits 0.571
Incapacity Benefit 2.591
Unemployment benefit & support 3.463
Maternity allowance & guardians allowance 0.373
Administrative costs & transfers 4.693
Total 91.012 84.263
Latest figures I can find quickly, Slawek. Osborne then used NIC increases to fund NHS increases, but you get the picture I hope. In other words the NHS comes nearly all from general taxation and borrowing etc etc.
Q. You are right and I did not check. Mea culpa. As per GOV.UK NI is contributed towards Basic State Pension, Additional State Pension, New State Pension, Contribution-based Jobseeker’s Allowance, Contribution-based Employment and Support Allowance, Maternity Allowance and Bereavement benefits no single penny to HNS – this is not health insurance as some (including me could believe). Funding for the NHS comes directly from taxation (but no specific tax is mentioned). The only tax being able to cover NHS on its own is income TAX, therefore a major part of income tax would have to be split in order to have direct funding HNS if we would like to have a clear picture. If you decide to spent all NI on NHS than benefits and pensions will have to be funded from other taxes. For me, it would be clearer to have one form of tax (yes, yes flat rate) for all state expenses. In generally the state is far too expensive and I would like to see some serious propositions of tax and spendings cuts. Where to cut do you ask? Pretty much everywhere. Whenever you take a closer look – the money is wasted in unbelievable ways.
Slawek
We can’t afford to cut tax, even with re-prioritisation and a few efficiency savings – there’s too much to do. And we don’t need a fiscal stimulus, we just import more and make houses even more expensive! We need to invest in infrastructure and productivity, it’s our only way out of this mess.
On the matter of a conspiracy theory regarding the global warming scam, it couldn’t be real could it?
Consider for example that the socialists of Europe came up with a scheme to steadily take over all the nations of the continent by means of a technocratic and bureaucratic polit bureau style Commission. to produce harmonised standards on everything to control all aspects of peoples lives and to infiltrate all large corporations and media and power generation. Offering politicians in each country status and a place at the feeding trough.
To generate a body that looks like a parliament and has elected members to give the illusion of democracy even though they have no rights to debate or generate legislation. The whole thing to be the model of a new World government supported by the UN and driven in common by control of the emission of CO2, thereby controlling energy generation in every country.
Such a conspiracy could only exist in the imagination of fruitcakes in UKIP right?
Anthony. Do you have any idea what your tax proposals would raise? Compared to what govt raises now?
I remain very struck by what you said a while back, that 79% of Govt spending was spent in 4 things. Health, welfare, pensions & debt. And I wonder why ukip doesn’t make more of that by proposiing to review and challenge some of the assumptions and costs arising that the last 40 years of European involvement have created through Harmonisation, Gold plating, etc.
I don’t believe my little business is alone in being crippled by ever increasing costs and regulatory overheads and any measures that reduced costs – and the need for govt borrowings – can only help UKIP’s cause.
And by the way, where do business costs like my overheads fit in to your flat rate proposals?
Simple Alan, just implement Slawek’s Transfer Tax, so you pay the same rate as Amazon!
Let’s have some reality round here. Debt will only come down when the economy is better run – which in my book means doing things differently.
We can change some priorities (substantial)and make some efficiencies (peanuts) but we’re not going to change those 3 other items, which are common to the western world.
Turnover Tax, I meant of course
Alan, I have little idea about what tax revenue would be raised but I am hopeful that human nature will do what it always does and toe the line if something is reasonable. As much as changing the taxation to a flat rate the tax exemptions needs to be thoroughly examined and pruned back to essentials only. It is the myriad exclusions that allow so much legal avoidance.
I do understand about EU regulations as I run an electronics design and manufacturing business. Many small electronic businesses just gave up when the EMC regulations were introduced that require crippling equipment testing on each and every variant of every product. The test houses were charging between £4000 and £10000 per product approval. That just can’t work for small scale production and drove them out of business. I believe that was the intention anyway. Then it was followed by lead being designated as a hazardous substance so lead-tin solder became illegal.
As far as your small business is concerned, I don’t see a problem. As now you present your business accounts where the legitimate costs of the business are subtracted from the gross profit to give the net figure. This net profit is then shared between you and your partners. Then all your personal income including proportion of net profit is sorted out in your tax return along with any other incomes. You are taxed according to your earnings after personal allowance.
I understand the problem with low wages in coastal and rural communities, as I live in Dorset.
Weymouth had a thriving seaside industry until cheap holidays to sunnier climates beckoned. It also had Portland Naval base only 5 miles away and the Admiralty Underwater Weapons Establishment at Portland, but the government closed them both.
Now there is only one employer in the area with several hundred employees, ASM, formerly DEK until it was bought out by the Germans. The fishing from Weymouth was taken away by the EU, now wages are really depressed.
In Dorchester there was the Atomic Energy Establishment just a few miles away at Winfrith, but the government closed it down. Now the principal employers in the town are Dorset County Hospital, County Hall, and the West Dorset District Council.
With the surrounding countryside, Dorchester is West Dorset and has had Tory MP’s forever. Because of the large public service employers there is a huge Liberal support. The rest of the people in Dorchester are low paid employees or low paid self employed.
Public services by tradition always expand to the limit of available funding and then a bit beyond. They have no notion of being careful with taxpayers money in the way they would if it was theirs. So by tradition public services are an inefficient use of financial resources.
Unfortunately we have seen in the franchised rail services that some perform reasonably and others don’t. The only competition with the railway is to use a car. Going by bus is still a nonsense getting from home to the pick-up point and then from drop off to destination.
Gas and electricity supply is dominated by the big beasts all of which charge much the same, so competition doesn’t actually bring the cost down.
Regarding tax and what people pay. The government uses exemptions to encourage the taxpayer to do things for the better, such as tax relief on pension payments, but then after Brown applied premium tax of 3% that takes half the of the annual growth of contributions, people don’t trust the government on pensions anymore.
So the problem with tax actually comes down to what exemptions should be allowed, if any. Maybe people should be allowed to put up to 10% of income (up to a maximum of £100,000) per annum into a pension fund and not pay tax on it.
As I have said before economics are definitely not my forte. But I would like to make 2 comments. First, in many rural areas including here actual wages are at the minimum. Farmers own a huge number of assets, if you include equipment as well as land, but don’t have that much in ‘take home’ pay. We already pay a substantial council tax because we live where we do. I absolutely agree with the observations of Slawek. Second, if I am to pay more in NI then I would like the NHS to be run by someone who understands business.
I also agree completely with Jack T that Government spending on the machinery of Government, much of it unnecessary and created by a ‘chumocracy’ should be radically overhauled. – No chance though!
Dee, if we engage in this kippery – because that’s how we’ll be attacked – we are sunk, falling right into their hands. And we’ll have deserved it.
Anthony, very good article and I totally agree – we need a flat rate tax with no exempt. The issue is when we start to consider what will be the best way to tax. Currently, UK (like almost every country in the world) has quite complicated tax code, lots of different taxes and para-taxes: income, national insurance, VAT, Corporate tax, Inheritance tax, Council tax, excise duties, stamp duties, motoring taxes, business rates, capital gains tax, TV licence and so on. This does not allow to assess correctly the real level of taxes paid by an “Average Joe” (AJ) to state. According to Adam Smith Institute, tax freedom day in the UK is June 3rd (https://www.adamsmith.org/taxfreedomday/) – this means that AJ really pays taxes close to 42% if his income. In the same as you rightly pointed “Not an Average Joe” (NAJ) will have resources to find out how to avoid taxes or skip paying taxes – he will open a company and have a majority of spendings into costs, will create a charity or will move his ass-ets abroad. I believe we ought to have just one, simple flat rate tax without any exempts equal for all entities in the UK: AJs, NAJs, companies, charities etc. I can see it as a form of turnover tax paid with every transaction (sale) on goods, services etc. You will have simple tax code (few pages really), very easy to calculate and clear for anybody what his or her duties to the state are. And as long as you operate on the UK’s markets – impossible to avoid legally.
Though we all moan about all the different taxes you highlighted and more, it is very useful to have both direct and indirect taxation. Certainly the present tax burden is at a relative high level as it usually hovers between 36 and 38% of ‘average’ income.
The Asian and Jewish communities have a superb track record of monetary success by passing on to children coming of age or getting married by giving them a house and often a business too so they are not saddled with punitive mortgage and loan rates. We Brits tend to work on the principal that we had it bloody hard so why shouldn’t our children.
In truth it would be better for us to emulate these other communities and pass on enough wealth early enough so they can build on it further. To do this we would have to do as John Major suggested, having the wealth cascade down through the generations. That means either scrapping inheritance tax or setting it high enough to allow the majority to pass on the relatively meagre wealth.
What we are afraid of is that having worked hard for it, our children would just squander it because they don’t have the necessary financial discipline.
Antony,
Some good ideas there, but probably too radical for the UKIP leadership. I particularly like your suggestion for the NI/NHS link.
Obviously there is another side to taxation; control of government spending.
I’m going to stick my neck out here:
IF (I know it’s a big one)
– government (at all levels) were to stick to what it is necessary for a government to do and keep their noses out of everything else
– government staffing levels were to reflect the above
– government were to become reasonably efficient at what it does ( as a private business needs to do to survive)
THEN
Taxation could be reduced by 50%.
So what do you suggest that we give up, Jack? Not 1%-2%, but 50%?!
Do some research on the government budget and let us know.
Q,
I might do so when I have time…but the point was that government sticks its nose in where it is neither necessary nor wanted and is inefficient. The news article on NHS procurement (Sunday) is likely the tip of a very large iceberg.